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This publication is available at https://www.gov.uk/government/publications/tax-lock-income-tax-national-insurance-contributions-and-vat/tax-lock-income-tax-national-insurance-contributions-and-vat

Who is likely to be affected

Those liable to pay Income Tax, National Insurance contributions (NICs) and VAT.

General description of the measure

This measure will introduce legislation to provide that the rates of income tax and Class 1 NICs will not rise; it also ensures increases to the Upper Earnings Limit (UEL) will not exceed the Higher Rate Tax Threshold (HRT). The measure will also introduce legislation to provide that the standard rate of VAT shall not exceed 20% and the reduced rate shall not exceed 5% and to provide that the relevant provisions will be locked to prevent them being used to remove any items from the current VAT reduced rates and VAT zero rates. This will be limited for the duration of the Parliament.

Policy objective

The main objective of this measure is to legislate that the rates of Income Tax, NICs and VAT may not increase. Also, that the relevant provisions will be locked to prevent them being used to remove any items from the current VAT reduced rates and VAT zero rates. This will be limited for the duration of the Parliament.

Background to the measure

This measure was announced in the Queen’s Speech on 27 May 2015.

Detailed proposal

Operative date

For Income Tax and VAT this measure will have effect on the date that the summer Finance Bill 2015 receives Royal Assent. For NICs it will have effect after Royal Assent of the National Insurance Contributions Bill.

Current law

Income Tax is charged annually and rates of Income Tax are normally set in each Finance Bill.

NICs rates and thresholds are set out in the Social Security Contributions and Benefits Act 1992 (SSCBA) and for the purposes of section 5 of SSCBA in the Social Security (Contributions) Regulations 2001 (SSCR).

The standard rate of VAT is set out in section 2 of the VAT Act 1994 (VATA). The reduced rate of VAT is set out in section 29A. Supplies listed in Schedule 7A may be amended through use of the powers in Section 29A(3). Section 30 requires the supplies listed in Schedule 8 to be zero-rated. Schedule 8 may be amended through use of the powers in section 30(4).

Proposed revisions

Income Tax

Legislation will be introduced to set out that the basic, higher and additional rates of Income Tax will not increase above 20%, 40% and 45% for the duration of this Parliament. This will apply to earnings income in England, Wales and Northern Ireland and UK wide savings income as expressed in Section 6(1) of the Income Tax Act 2007.

National Insurance contributions

Legislation will be introduced in a NICs Bill to set out that Class 1 NICs rates payable by employers and employees under the SSCBA will not be increased for the duration of this Parliament. The rates of Class 1 contributions paid by employers and employees are set out in the SSCBA. Section 8(2) sets the employees main rate of contributions at 12% and the additional rate at 2%. Section 9(2) sets the employers rate of NICs at 13.8%.

Legislation will also be introduced to ensure the UEL for Class 1 contributions (currently £815 per week) does not exceed the HRT. The UEL is the point at which employee’s earnings no longer count toward contributory benefits and they start to pay NICs at 2%. The HRT is the sum of the personal allowance (currently £10,600 and the basic rate limit (£31,785) equating to £42,385 in 2015 to 2016. The UEL is specified in Regulation 10(b) of the SSCR as a weekly amount of £815 and the prescribed annual equivalent in regulation 11(2A)(b) as £42,385.

Northern Ireland has separate legislation covering NICs and these changes will apply to Northern Ireland as well.

VAT

Legislation will be introduced specifying that, for the duration of this Parliament, the standard rate under section 2 of VATA can be no higher than 20% and that the reduced rate under section 29A can be no higher than 5%. The zero rate cannot be more than 0% and therefore this is not covered by the legislation.

The legislation will also prevent supplies specified in Schedule 7A (reduced rate supplies) and Schedule 8 (zero rate supplies) from being removed from those schedules through use of the powers in 29A(3) and 30(4).

Summary of impacts

Exchequer impact (£m)

2015 to 2016

2016 to 2017

2017 to 2018

2018 to 2019

2019 to 2020

2020 to 2021

nil

nil

nil

nil

nil

nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure is not expected to have any negative financial impact on individuals, households or families. However, it will bring social benefits in providing certainty about tax rates for the duration of this Parliament.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

There are no impacts on any groups which share a protected characteristic.

Impact on business including civil society organisations

This measure is expected to have no impact on businesses and civil society organisations, however, it will provide certainty about tax rates for the duration of this Parliament.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other)

There will be no significant operational impacts on HMRC.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored and assessed alongside other tax changes.

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